The Costs of Not Expanding Medicaid

I generally don’t like to tell people that I majored in economics in college, because – the painful truth be told – there’s not a lot that I actually remember about “the dismal science.”

One of the few things I do remember, however, is the concept of “opportunity cost.” That’s the name economists give to the cost of not doing something.

Which brings us, in today’s lesson, to Medicaid, the government-sponsored health insurance program for certain groups of low-income Americans.

You may know that a key feature of the 2010 Patient Protection and Affordable Care Act – or Obamacare – is the expansion of Medicaid to millions of low-income Americans, many of them uninsured, beginning in 2014. This has been one of the most controversial parts of the new health care law. As of today, 23 states and the District of Columbia are moving forward with the Medicaid expansion, 21 states are not and six states are still deciding what to do.

Now come two new studies that examine the impact – the opportunity cost – of state decisions not to take part in the Medicaid expansion under the health care law.

The first study, prepared by the Urban Institute for the Kaiser Commission on Medicaid and the Uninsured (KCMU), concludes that the decisions by so many states not to participate in the Medicaid expansion “will leave a major hole in the health reform effort.” Nearly two-thirds of the low-income Americans who originally were expected to be covered by the expansion are in these 27 states, according to the study. Just three states – Florida, Georgia and Texas – account for half of the uninsured in the states not moving forward.

The second study, by two KCMU analysts, finds that nearly half of the nation’s uninsured with incomes below the Medicaid expansion level – in 2013, $15,856 for an individual or $26,951 for a family of three – live in states not moving forward at this time. In the South, that’s eight of every 10 such individuals. The study also finds that:

The 21 states that are not expanding Medicaid will forgo $35 billion in federal funds in 2016 and $345.9 billion over the 2013-2022 period.

The six states still debating the expansion would forgo $15.2 billion in federal funds in 2016 and $151 billion over the 2013-2022 period.

In these states, the projected increases in federal funds would greatly exceed any increases in state costs, and those costs would also be offset by reduced spending for uncompensated care and increases in economic activity.

And those, as you already may have guessed, are the opportunity costs associated with not expanding Medicaid.